Glaxo (GSK) Down 1.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for GSK (GSK). Shares have lost about 1.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Glaxo due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Q4 Earnings & Sales Beat
GSK reported fourth-quarter 2022 adjusted earnings of 64 cents per American depositary share (“ADS”), beating the Zacks Consensus Estimate of 59 cents. Adjusted earnings improved 10% year over year on a reported basis but declined 6% at a constant exchange rate (CER).
Quarterly revenues increased 4% on a reported basis but declined 3% at CER to $8.7 billion (£7.4 billion), beating both the Zacks Consensus Estimate and our model estimates of $8.3 billion and $7.7 billion, respectively. Excluding sales from COVID products, total sales were up 9% at CER.
Sales in the United States declined 10%. Sales in European and International markets gained 7% and 3%, respectively, at CER.
All growth rates mentioned below are on a year-on-year basis and at CER.
Quarterly Highlights
GSK reports under three segments: Specialty Medicines, Vaccines and General Medicines. Specialty Medicines, Vaccines and General Medicines are clubbed as commercial operations.
In July, GSK completed the spin-off of its Consumer Healthcare segment into a new standalone company called Haleon. From second-quarter onward, the Haleon business was presented as a discontinued operation.
Specialty Business Remains Strong
Sales of the Specialty Medicines segment declined 11% at CER due to the declining sales of Xevudy. Revenues from the Specialty Medicines segment were up 21% at CER, excluding Xevudy sales as the company saw double-digit growth of all therapy areas
HIV sales increased 21% at CER, driven by sales growth of new HIV drugs, Juluca, Dovato, Cabenuva, Rukobia and Apretude, a favorable pricing mix in the United States and year-end inventory build, which was partially offset by international tender decline.
Overall, sales of the new HIV drugs increased 70% at CER and comprised 48% of the total HIV portfolio in the third quarter.
GSK generates the majority of its HIV sales from its dolutegravir franchise, comprising three-drug regimens — Triumeq and Tivicay — and two-drug regimens — Dovato and Juluca. The launch of the two-drug regimens has been eroding sales and market share of the three-drug regimens following their launch.
Sales of the dolutegravir franchise were up 16% at CER in the U.S. market and 3% in Europe. In International markets, sales rose 21% at CER
Sales of Triumeq declined 8% at CER, while Tivicay sales were up 5% at CER. Juluca was up 22% while Dovato was up 59% in the third quarter.
New medicines Cabenuva and Apretude contributed £129 million and £21 million, respectively to revenues compared with £101 million and £10 million, respectively in the previous quarter.
Oncology sales were up 11% year over year, mainly driven by Zejula. Sales of Zejula rose 8% in the quarter. Sales of the drug, Blenrep, gained 14% during the quarter. Blenrep was withdrawn from the U.S. market in the fourth quarter. New drug Jemperli added £5 million to the top line in the fourth quarter compared to £8 million in the previous quarter.
In 2023, GSK expects oncology sales to decline slightly from the 2022 level before returning to growth in 2024.
Immuno inflammation, respiratory and others sales were up 22% in the fourth quarter. Sales of the respiratory drug, Nucala, were up 18% at CER during the quarter, driven by strong demand trends and approvals/launch of additional indications globally. Sales of the immuno-inflammation drug, Benlysta, were up 20% in the quarter, reflecting strong underlying demand in the United States and worldwide.
Xevudy generated sales of £125 million in the fourth quarter, compared with £411 million in the third quarter. The majority of the drug’s sales were generated from International markets.
Management expects sales of Specialty Medicines to increase in a mid to high single-digit percentage at CER in 202.
General Medicines
Sales of General Medicines were in line with the year-ago quarter. Loss of sales from established drugs due to generic competition in the United States and Europe was offset by the strong sales growth of respiratory drugs Trelegy Ellipta and Flixotide/Flovent and the post-pandemic recovery of Augmentin sales. A few established drugs like Avamys and Ventolin also demonstrated sales growth.
In General Medicines, Respiratory sales were up 2% at CER, while Other General Medicines sales declined 3%.
Trelegy Ellipta sales surged 19% year over year, driven by strong growth in all regions. Sales of Anoro Ellipta were up 5% at CER during the fourth quarter. Key established drugs Advair/Seretide sales declined 6% year over year due to generic competition in all markets. Sales on Revlar/Breo Ellipta were down 15% at CER year over year.
In General Medicines, GSK expects a slight decline in turnover in 2023 due to increased generic erosion of respiratory drugs.
Vaccine Sales Recovery Continues
GSK’s fourth-quarter vaccine sales gained 7% at CER, driven by a strong performance of Shingrix and vaccines.
The fourth quarter of last year had benefited from pandemic adjuvant vaccine sales that were not repeated in the fourth quarter of 2022. Vaccine sales were up 9% at CER, excluding unrepeated 2021 pandemic adjuvant sales.
Shingrix sales rose 18% at CER during the quarter due to strong commercial execution in Europe and International markets, post-pandemic rebound and the growing impact of new launches. In the United States, Shingrix sales declined 7% due expected unfavorable wholesaler inventory destocking after higher-than-expected inventory levels in the past two quarters. Presently, Shingrix is available across 26 countries and is expected to be in 34 countries by 2024.
In Meningitis vaccines, Bexsero sales were up 13%, while sales of Menveo rose 50%. Sales of the influenza vaccine, Fluarix, were up 2% at CER. Sales of Established vaccines were up 4% year over year.
In 2023, Vaccine sales are expected to grow in the mid-teens percentage at CER, excluding pandemic adjuvant sales.
For Shingrix, GSK expects double-digit growth in 2023 to be driven by strong demand in existing markets and geographical expansion.
Profit Discussion
Adjusted operating profit rose 5% at CER in the period supported by lower sales of COVID-19 solutions, which have low margin, lower inventory adjustments and write offs, favorable product mix and higher royalty income which offset the impact of higher SG&A costs. Adjusted operating margin rose 1.5 percentage points in the quarter at CER to 21.6%.
Adjusted selling, general and administration (SG&A) costs increased 13% year over year at CER to £2.44 billion. The increase in SG&A costs was due to launch investments in Specialty Medicines and Vaccines segments and increased freight and distribution costs which offset the benefits from cost controls.
Research and development (R&D) expenses rose 11% year over year at CER to reach £1.52 billion due to investments in Vaccines clinical development, including in mRNA technology platforms, and MAPS following the Affinivax acquisition and costs related to key late-stage candidates.
2023 Guidance
GSK issued its guidance for 2023. The company expects sales to increase 6% to 8% in 2023.
The company expects adjusted operating profit growth to increase between 10% and 12% at CER. GSK also provided guidance for its adjusted EPS, which is anticipated to grow in the range of 12% and 15%. Adjusted tax rate is expected to be around 15%.
The above guidance excludes any revenues from its COVID-related products. Including COVID-related products, sales growth is expected to decline by approximately 9% while adjusted operating profit growth is expected to decline by 6% to 7%. Management does not expect significant COVID-19 related sales in 2023.
SG&A is expected to grow at a higher rate than sales, reflecting investment to support recent and anticipated launches
Foreign exchange is expected to have a minimal impact on sales and adjusted operating profit in 2023.
The company also expects to record slightly lower sales and adjusted operating profit growth in first-half 2023.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -5.06% due to these changes.
VGM Scores
Currently, Glaxo has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Glaxo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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